Christian Reformed Church Retirement Plan and Special Assistance Fund for U.S. Ministers

Transcription

1 Christian Reformed Church Retirement Plan and Special Assistance Fund for U.S. Ministers Financial Statements and Supplementary Information Years Ended December 31, 2012 and 2011 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 Financial Statements and Supplementary Information Years Ended December 31, 2012 and 2011

3 Contents Independent Accountant s Review Report 3 Financial Statements Retirement Plan for U.S. Ministers: Statements of Net Assets Available for Benefits as of December 31, 2012 and Statements of Changes in Net Assets Available for Benefits for the Years Ended December 31, 2012 and Special Assistance Fund for U.S. Ministers: Statements of Net Assets Available for Benefits as of December 31, 2012 and Statements of Changes in Net Assets Available for Benefits for the Years Ended December 31, 2012 and Notes to Financial Statements 8-16 Supplementary Information Independent Accountant s Review Report on Supplementary Information 18 Retirement Plan for U.S. Ministers: Details of Investment Counseling Fees and Administrative Expenses for the Years Ended December 31, 2012 and

4 Independent Accountant s Review Report U.S. Pension Trustees Christian Reformed Church Retirement Plan Grand Rapids, Michigan We have reviewed the accompanying statements of net assets available for benefits of the Christian Reformed Church Retirement Plan for U.S. Ministers (Plan) and the Christian Reformed Church Special Assistance Fund for U.S. Ministers (Fund) as of December 31, 2012 and 2011, and the related statements of changes in net assets available for benefits for the years then ended. A review primarily includes applying analytical procedures to management s financial data and making inquiries of management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States, and for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Our responsibility is to conduct the reviews in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States. July 25, 2013 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 3

5 Christian Reformed Church Retirement Plan for U.S. Ministers Statements of Net Assets Available for Benefits December 31, Assets Cash $ 281,721 $ 378,301 Investments, at fair value Short-term obligations 2,672,833 2,124,548 U.S. treasury securities 2,091,473 1,881,311 Government and agency obligations 3,999,392 4,286,930 Corporate bonds 2,025,343 2,116,635 High yield funds 5,722,186 4,068,890 Hedge fund 9,833,960 8,634,197 Limited partnership - 101,361 Common stocks 67,028,665 63,801,366 Total investments, at fair value 93,373,852 87,015,238 Accrued interest receivable 58,801 59,576 Participants assessments receivable 144, ,143 Due from Canadian Retirement Plan Equipment, net 89, ,125 Total Assets 93,948,568 87,750,383 Liabilities Accounts payable 40,938 63,350 Net Assets Available for Benefits $ 93,907,630 $ 87,687,033 See accompanying independent accountant s review report and notes to financial statements. 4

6 Christian Reformed Church Retirement Plan for U.S. Ministers Statements of Changes in Net Assets Available for Benefits Year ended December 31, Additions Contributions: Participant premiums $ 5,222,079 $ 5,045,282 Investment income (loss): Net appreciation (depreciation) in fair value of investments 9,997,024 (689,157) Interest and dividends 2,003,100 1,868,304 Miscellaneous revenue 18,306 5,489 Total investment income 12,018,430 1,184,636 Total Additions 17,240,509 6,229,918 Deductions Pension benefit payments to retirees: United States pensionable services 9,901,028 8,984,848 Lump-sum withdrawals 45,480 9,142 Total pension benefit payments to retirees 9,946,508 8,993,990 Investment counseling fees and administrative expenses 1,073,404 1,089,908 Total Deductions 11,019,912 10,083,898 Net increase (decrease) 6,220,597 (3,853,980) Net Assets Available for Benefits, beginning of year 87,687,033 91,541,013 Net Assets Available for Benefits, end of year $ 93,907,630 $ 87,687,033 See accompanying independent accountant s review report and notes to financial statements. 5

7 Christian Reformed Church Special Assistance Fund for U.S. Ministers Statements of Net Assets Available for Benefits December 31, Assets Cash $ 127,684 $ 63,320 Accounts receivable 35 - Accrued interest receivable Total Assets 127,747 63,355 Liabilities Accounts payable 10,774 7,638 Net Assets Available for Benefits $ 116,973 $ 55,717 See accompanying independent accountant s review report and notes to financial statements. 6

8 Christian Reformed Church Special Assistance Fund for U.S. Ministers Statements of Changes in Net Assets Available for Benefits Year ended December 31, Additions Ministry shares $ 21,299 $ 32,551 CRCNA funding 200,000 - Interest Total Additions 221,501 33,351 Deductions Moving allowances 45,364 52,843 Assistance payments 114,881 81,469 Total Deductions 160, ,312 Net increase (decrease) 61,256 (100,961) Net Assets Available for Benefits, beginning of year 55, ,678 Net Assets Available for Benefits, end of year $ 116,973 $ 55,717 See accompanying independent accountant s review report and notes to financial statements. 7

9 Notes to Financial Statements 1. Plan Description The Christian Reformed Church Retirement Plan for U.S. Ministers (Plan), formerly the Retirement Plan for Ministers of the Christian Reformed Church in the United States, is a defined benefit pension plan established for ministers of The Christian Reformed Church in North America (Church) in the United States of America. A minister becomes eligible for participation in the Plan as of his service commencement date in the Church. The Plan provides for 100% vesting upon completion of two years of service. Effective July 1, 2011 there were changes to the Plan provisions, including an increase in the retirement age from 65 to 66, modification of the standard benefit form from joint and survivor to single life with five years certain, and the addition of a provision for pre-retirement in-service pension distributions. Participants should refer to the Plan Document for a more complete description of the Plan s provisions. All organized churches are required to pay church assessments determined at an amount per professing member age 18 years and older or, if greater, the direct costs of their first or only pastor s participation in the organized church, based on reported membership statistics. All emerging churches and each other ministry that employs a minister or endorsed chaplain as a missionary, professor, teacher or in any other capacity are required to pay the annual cost of participation in the Plan. Grant of credited service for pastors in the employ of agencies, churches and other organizations is contingent on timely payment of amounts billed. The Church maintains a similar plan for ministers serving in Canada. The Synod of the Christian Reformed Church (Synod) has established that the total pension obligation to ministers and their dependents in Canada and the United States of America is an across-the-board denominational responsibility requiring joint financing. The Special Assistance Fund (Fund) provides to any retired minister, their surviving spouse or orphan assistance payments for needs which are recognized as a necessity of life and are of an unusual and emergency nature. The Fund also provides for payment of a defined amount to a retired minister or their surviving spouse for one-time moving expenses. Synod provides financing for the Fund through denominational ministry share. 2. Summary of Significant Accounting Policies Basis of Accounting The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Investment Valuation and Income Recognition The fair value of investments is determined by reference to closing market prices on national exchanges as of year-end. Net appreciation or depreciation in the fair value of investments held at See accompanying independent accountant s review report. 8

10 Notes to Financial Statements year-end is determined using the beginning of the year value or purchase price if acquired since that date. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Investment in Hedge Fund Currently, the Plan invests in The Endowment (Exempt QP) Fund II, L.P. (The Endowment Fund). The Endowment Fund is a highly diversified fund intended to preserve capital across all market cycles, while still providing equity-like returns. The funds are non-transferable. See Note 6 for additional information. Risks and Uncertainties The Plan utilizes various investment instruments including cash and cash equivalents, U.S. government securities, corporate debt instruments and corporate stocks. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts in the financial statements. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions during the reporting period. Actual results could differ from those estimates. Payment of Benefits Benefit payments to participants are recorded upon distribution. New Accounting Pronouncement In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU ). ASU amended ASC 820, Fair Value Measurements and Disclosures, to provide a consistent definition of fair value and improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. Some of the amendments clarify the application of existing fair value measurement and disclosure requirements, while other amendments change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements. The amendments are to be applied prospectively and are effective for annual periods beginning after December 15, The adoption of this standard did not have a material impact on the financial statements. See accompanying independent accountant s review report. 9

11 Notes to Financial Statements Reclassifications Certain amounts in the prior period have been reclassified in order to be consistent with the current period s presentation. Subsequent Events Subsequent events have been evaluated by management through July 25, 2013, the date these financial statements were available to be issued. 3. Actuarial Present Value of Accumulated Plan Benefits Accumulated plan benefits are those future periodic payments, including lump-sum distributions that are attributable under the Plan s provisions to the service participants have rendered as of the valuation date. Accumulated plan benefits include benefits expected to be paid to (a) retired or terminated participants or their beneficiaries, (b) beneficiaries of participants who have died, and (c) present participants or their beneficiaries. The actuarial present value of accumulated plan benefits is determined by an independent actuary and is that amount that results from applying actuarial assumptions to adjust the accumulated plan benefits to reflect the time value of money (through discounts for interest) and the probability of payment (by means of decrements, such as for death, disability, withdrawal or retirement) between the valuation date and the expected date of payment. The actuarial present value of accumulated plan benefits as of January 1, 2012, date of the most recent actuarial valuation (for the year ended December 31, 2011) is as follows: January 1, 2012 Vested benefits Participants currently receiving payments $ 81,857,348 Other participants 31,265,991 Total vested benefits 113,123,339 Non-vested benefits 300,955 Total Actuarial Present Value of Accumulated Plan Benefits $ 113,424,294 The actuarial present value of accumulated plan benefits is calculated once every three years by enrolled actuaries. The actuarial accrued liability under the Projected Unit Credit Funding Method as of January 1, 2012, assuming increases in compensation between that date and the projected retirement dates of Plan participants, is approximately $117,000,000. This amount is used by the actuaries to determine Plan funding. See accompanying independent accountant s review report. 10

12 Notes to Financial Statements The significant assumptions underlying the actuarial computations used to calculate the accumulated benefit obligations are as follows: Interest rates 8% per annum compounded Normal retirement age 13% of participants age 64, 50% of participants age 66, and 100% participants age 71 will retire Mortality table used: Healthy participants Disabled participants RP-2000 White Collar Combined Mortality Table for males and females RP-2000 White Collar Combined Mortality Table for males and females Withdrawal Rate range from 2.4% at age 20 to 1.1% at age 55 Marriage assumption Amortization period for unfunded liabilities 95% of active participants are married 15 years The foregoing actuarial assumptions are based on the presumption that the Plan will continue. If the Plan were to terminate, different actuarial assumptions and other factors might be applicable in determining the actuarial present value of accumulated plan benefits. 4. Priorities Upon Termination of the Plan Although the Plan is intended to be permanent, the Synod reserves the right to terminate the Plan. Upon termination or partial termination, all accrued benefits, to the extent funded, become fully vested. 5. Trustees of the Plan The Plan provides for five trustees who are appointed by the Synod. 6. Investments Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. The Plan utilizes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument s Level within the fair value hierarchy is based on the lowest Level of any input that is significant to the fair value measurement. See accompanying independent accountant s review report. 11

13 Notes to Financial Statements The three levels to the fair value hierarchy are described as follows: Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets in active markets. Level 2 - Inputs to the valuation methodology include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets, other inputs that are observable or can be corroborated by observable market data. Level 3 - Inputs to the valuation methodology are both significant to the fair value measurement and unobservable. The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Short-term obligations - Valued at the closing price of the money market fund reported at yearend. Because the short-term obligations are not actively traded, the fair values are classified as Level 2 measurements. U.S. treasury securities, government and agency obligations, corporate bonds, and high yield funds - Valued by a pricing agency based on quoted prices for similar assets in active markets. Hedge funds and limited partnership - Valued based upon management estimates as observable market data is not readily available. Common stock - Valued at quoted market prices. The Plan s valuation methods may result in a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although Plan management believes the valuation methods are appropriate and consistent with the market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used at December 31, 2012 and The remainder of this page intentionally left blank. See accompanying independent accountant s review report. 12

14 Notes to Financial Statements The following tables set forth the Plan s investments by level within the fair value hierarchy. Fair Value Measurements December 31, 2012 Level 1 Level 2 Level 3 Total Short-term obligations Money market $ - $ 2,499,156 $ - $ 2,499,156 Bond - 173, ,677 Total short-term obligations - 2,672,833-2,672,833 U.S. treasury securities 1,433, ,116-2,091,473 Government and agency obligations - 3,999,392-3,999,392 Corporate bonds - 2,025,343-2,025,343 High yield funds - 5,722,186-5,722,186 Hedge funds - - 9,833,960 9,833,960 Common stock Large Cap 32,520, ,520,949 Small/Mid Cap 9,027, ,027,705 International 15,988, ,988,296 Special 9,491, ,491,715 Total common stock 67,028, ,028,665 Investments, at fair value $ 68,462,022 $ 15,077,870 $ 9,833,960 $ 93,373,852 The remainder of this page intentionally left blank. See accompanying independent accountant s review report. 13

15 Notes to Financial Statements Fair Value Measurements December 31, 2011 Level 1 Level 2 Level 3 Total Short-term obligations Money market $ - $ 2,091,025 $ - $ 2,091,025 Bond - 33,523-33,523 Total short-term obligations - 2,124,548-2,124,548 U.S. treasury securities 1,246, ,394-1,881,311 Government and agency obligations - 4,286,930-4,286,930 Corporate bonds - 2,132,010-2,132,010 High yield funds - 4,068,890-4,068,890 Hedge funds - - 8,634,197 8,634,197 Limited partnership , ,361 Common stock Large Cap 32,382, ,382,665 Small/Mid Cap 9,845, ,845,694 International 14,588, ,588,858 Special 6,968, ,968,774 Total common stock 63,785, ,785,991 Investments, at fair value $ 65,032,908 $ 13,246,772 $ 8,735,558 $ 87,015,238 The table below sets forth a summary of changes in the fair values of the Plan s Level 3 investments. Year ended December 31, 2012 Hedge Funds Limited Partnership Balance, beginning of year $ 8,634,197 $ 101,361 Unrealized losses relating to instruments still held at the reporting date (50,237) - Interest/dividends - - Purchases 1,250,150 - Sales (150) (109,788) Realized gains - 8,427 Balance, end of year $ 9,833,960 $ - See accompanying independent accountant s review report. 14

16 Notes to Financial Statements Year ended December 31, 2011 Hedge Funds Limited Partnership Balance, beginning of year $ 8,700,041 $ 86,650 Unrealized gains (losses) relating to instruments still held at the reporting date (65,844) 9,322 Interest/dividends - 5,389 Balance, end of year $ 8,634,197 $ 101,361 Quantitative Information About Significant Unobservable Inputs Used in Level 3 Fair Value Measurements The following table represents the Plan s Level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, and the significant unobservable inputs and the ranges of values for those inputs. Instrument Fair Value Principal Valuation Technique Liquidity of Investments Adjustments to NAV Hedge Fund $ 9,833,960 NAV as practical expedient 1, 2 Quarterly redemption None 1 Valuation Technique applies to underlying investment of The Endowment Master Fund, L.P. which is an underlying investment of The Endowment Offshore QP Fund, Ltd., of which The Endowment Fund invests substantially all of its assets. 2 Unobservable valuation input. Fair value of individual investments that represent 5% or more of the Plan s net assets available for benefits are as follows: December 31, The Endowment Fund $ 9,833,960 $ 8,634,197 JPMorgan High Yield Bond Fund 5,722,186 * *Below 5% of net assets available for benefits. See accompanying independent accountant s review report. 15

17 Notes to Financial Statements Net appreciation (depreciation) in the fair value of investments is as follows: December 31, Common stocks $ 9,323,648 $ (1,101,984) U.S. treasury securities (7,476) 295,841 Government and agency obligations (75,089) 15,937 Hedge fund (50,237) (65,844) High yield funds 730,957 68,891 Limited partnership 8,427 9,322 Corporate bonds 66,794 88,680 Total $ 9,997,024 $ (689,157) 7. Expenses and Transactions With Other Denominational Entities Administrative expenses include costs of $225,743 in 2012 and $223,259 in 2011, which were paid by The Christian Reformed Church in North America Denominational Services and allocated to the Plan. The Minister s Pension Plan in the U.S. and the Special Assistance Fund manage cash in conjunction with the Church s consolidated cash management system. 8. Income Tax Status The Plan and the Fund are part of the Church and, under Internal Revenue Service regulations, are exempt from taxation. The Plan and the Fund are also exempt from the reporting requirements of the Employee Retirement Income Security Act of See accompanying independent accountant s review report. 16

18 Supplementary Information

19 Independent Accountant s Review Report on Supplementary Information Our reviews of the basic financial statements included in the preceding section of this report were made for the purpose of expressing a conclusion that there are no material modifications that should be made to the financial statements in order for them to be in conformity with accounting principles generally accepted in the United States. The supplementary information presented in the following section of this report is presented only for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the inquiry and analytical procedures applied in the reviews of the basic financial statements. Based on our reviews, we did not become aware of any material modifications that should be made to the supplementary information. July 25, 2013 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 18

20 Christian Reformed Church Retirement Plan for U.S. Ministers Details of Investment Counseling Fees and Administrative Expenses Year ended December 31, Investment counseling fees $ 713,299 $ 720,987 Administrative expenses allocated from The Christian Reformed Church in North America Denominational Services 225, ,259 Other administrative expenses 83,497 82,204 Professional fees 50,865 63,458 Total $ 1,073,404 $ 1,089,908 See accompanying independent accountant s review report on supplementary information. 19